South Korea’s 10-year government bond yield climbed about 10 basis points to around 4.18% in mid-May, its highest level since November 2023, as markets priced in a higher likelihood of more aggressive rate hikes by the Bank of Korea. The move reflects growing inflation concerns: headline inflation accelerated to 2.6% in April, the fastest pace since July 2024, amid an oil price shock linked to the Iran conflict.
At the same time, stronger growth prospects—underpinned by an AI-driven upcycle in the semiconductor sector—have reinforced the hawkish shift. Real GDP expanded by 1.7% quarter-on-quarter in Q1, the strongest quarterly growth in five years. This combination of firmer inflation and robust activity has led major brokerages to adopt a more hawkish policy outlook, with most now expecting rate increases either later this year or in 2025, reversing earlier expectations that rates would remain on hold.
Market attention is now focused on the upcoming policy meeting later this month for additional guidance. It will be the first meeting since the departure of Shin Sung-hwan, previously regarded as one of the board’s dovish members, a change that has contributed to perceptions of a more hawkish policy panel.
